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  #1  
Old 10-15-2015, 11:09 PM
AllanF AllanF is offline
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Default Reserving : Margin for Adverse Deviation

Hi in our country it was specified to add 10% as MFAD.

I would like to ask if a 10% Margin for Adverse Deviation is applied on the whole claims liabilities (Outstanding + IBNR) or just the computed IBNR.

Considering you have a large portion in the outstanding losses then Mfad will be significant.

Many thanks.
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Old 10-16-2015, 07:32 AM
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I'm guessing this is for IBNER/bulk reserves? Do they have documentation on where the 10% came from? If this was all that was given to me, I'd think to multiply it by case incurred losses.
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Old 10-16-2015, 08:29 AM
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Quote:
Originally Posted by Abelian Grape View Post
If this was all that was given to me, I'd think to multiply it by case incurred losses.
Why do you need to include a margin for the paid losses?
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Old 10-16-2015, 08:31 AM
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I would interpret it as a margin on your IBNR+Bulk estimate, which already implicitly includes an estimate for development on case reserves.
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Whiskey "on tap" - 12/31/15
Spoiler:

Bourbon(16)
Pappy Van Winkle-Family Reserve 15yr & lot "B" 12yr
Baker's 7yr
Blanton's
Knob Creek - 9yr
Basil Hayden
Maker's Mark - 46 & Cask Strength
Woodford Reserve
Jack Daniel's-Gentleman Jack, Single Barrel & Old #7
Four Roses Small Batch
Noah's Mill
Kirkland Bourbon - 7yr

Rye(6)
Angle Envy's - Finished Rye
Ravenswood Rye
Bulleit
High West - Double Rye
Whistle Pig - 10 yr
Old Overholt

Scotch(4)
Glenfiddich - The Distiller's Edition
Tomatin 12yr
The Dimple Pinch - 15 yr
Dewar's White Label

Irish(6)

Middleton Very Rare
Redbreast 12yr
Bushmill - Single Malt 16 yr
Connemarai
Jameson - Caskmates Stout and Regular
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Old 10-16-2015, 08:36 AM
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Quote:
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Why do you need to include a margin for the paid losses?
We compute the factor based on case incurred. It really depends on where OP's % came from.
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Old 10-16-2015, 09:22 AM
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I use to see some Candaian reserve valuations that required a PFAD and I thought it was calculated on total reserves.

Consider a reserve estimate where there is $100 of case reserve and $0 IBNR. Would it make sense there there is no possibility of adverse deviation?

Long story short I have no idea. Presumably there would be some regulation somewhere?
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Old 10-16-2015, 09:36 AM
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Quote:
Originally Posted by Whiskey View Post
Why do you need to include a margin for the paid losses?


Quote:
Originally Posted by Whiskey View Post
I would interpret it as a margin on your IBNR+Bulk estimate, which already implicitly includes an estimate for development on case reserves.
Based on general principles of conservatism--in the absence of explicit direction of its application--I would apply it to the case OS + IBNR (broad definition).

While the IBNR may already have built in a provision for development on case reserves, that is not to say that it's accurate.
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Old 10-16-2015, 09:41 AM
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Quote:
Originally Posted by Vorian Atreides View Post
Based on general principles of conservatism--in the absence of explicit direction of its application--I would apply it to the case OS + IBNR (broad definition).

While the IBNR may already have built in a provision for development on case reserves, that is not to say that it's accurate.
I can accept this line of reasoning.
__________________
Whiskey "on tap" - 12/31/15
Spoiler:

Bourbon(16)
Pappy Van Winkle-Family Reserve 15yr & lot "B" 12yr
Baker's 7yr
Blanton's
Knob Creek - 9yr
Basil Hayden
Maker's Mark - 46 & Cask Strength
Woodford Reserve
Jack Daniel's-Gentleman Jack, Single Barrel & Old #7
Four Roses Small Batch
Noah's Mill
Kirkland Bourbon - 7yr

Rye(6)
Angle Envy's - Finished Rye
Ravenswood Rye
Bulleit
High West - Double Rye
Whistle Pig - 10 yr
Old Overholt

Scotch(4)
Glenfiddich - The Distiller's Edition
Tomatin 12yr
The Dimple Pinch - 15 yr
Dewar's White Label

Irish(6)

Middleton Very Rare
Redbreast 12yr
Bushmill - Single Malt 16 yr
Connemarai
Jameson - Caskmates Stout and Regular
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  #9  
Old 10-16-2015, 10:28 AM
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If your country's regulations are similar to that of Australia's or to Solvency II, then the margin will be off of the discounted case reserves + IBNR.
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Old 10-16-2015, 10:31 AM
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Originally Posted by examsarehard View Post
If your country's regulations are similar to that of Australia's or to Solvency II, then the margin will be off of the discounted case reserves + IBNR.
Good point to also bring into consideration!
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